Small-Business Jobs Measure Offers Immediate Tax Incentives

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WASHINGTON -- President Barack Obama has signed into law the Small Business Jobs Act, which proponents expect to create about $30 billion in loans and $12 billion in tax incentives. Among the latter are eight small business tax cuts, which take effect immediately.

The President explained that the purpose of the measure is to offer incentives for businesses to make new investments and expand. "This is important because small businesses produce most of the new jobs in this country," he pointed out.

Key provisions of the Small Business Jobs Act include the elimination of the tax on capital gains from key small business investments. This strengthens the incentive provided by the American Recovery and Reinvestment Act, which already had excluded 75% of key small-business investments from taxes. The new measure puts into place a provision eliminating all capital-gains taxes on such investments for the balance of 2010, if they are held for a minimum of five years.

PHOTO: President Barack Obama greets small business owners after signing the Small Business Bill in the East Room of the White House, Sept. 27, 2010. (Photo by Samantha Appleton)

The act also extends and expands the ability of small businesses to expense capital investments immediately. For 2010 and '11, a business can write off up to $500,000 in investments, and the amount of investments at which the write-off phases out increases to $2 million.

The measure also gives self-employed individuals the ability to deduct the cost of heath insurance for themselves and their family members from self-employment taxes. It also increases the deduction for start-up expenses incurred by entrepreneurs this year from $5,000 to $10,000, with a threshold of $60,000 in expenditures for phase-out.

The bill allows some small businesses to carry back general business credits to offset five years of taxes. The purpose is to afford them tax relief this year. The measure also allows these credits to offset the alternative minimum tax.

Another provision limits the penalties imposed for tax reporting errors that affect small businesses disproportionately by specifying that penalties for failing to report certain transactions will not be assessed in fixed-dollar amounts. The previous procedure could impose disproportionately large levies on small businesses under certain circumstances.

The bill provides funds to extend successful Small Business Administration "recovery loans," making nearly $700 million available at once for such loans. It also raises the maximum SBA Express loan value from $350,000 to $1 million, with the objective of providing greater access to working capital for use in purchasing new inventory.

Finally, the Small Business Lending Fund is to make $30 billion available to small banks with incentives to increase small business lending. It is hoped that this will catalyze multiples of that amount in new credit extended to small businesses.

Opponents of the measure argued that it is simply another "bailout," and contended that small-business reinvestment and expansion require overcoming the uncertainty that is suppressing demand for the products and services that small businesses offer. Unless demand increases, they point out, there is no reason for a business to expand.